Earlier this year, the City of Austin became the first city in Texas – and the South – to approve an extensive paid sick leave policy. This ordinance, which passed on a 9-2 vote by the Austin City Council, will require private businesses to provide paid sick leave to approximately 87,000 Austinites. The new law’s passage prompted applause by progressives who support the idea on principle and by many of the families who would be affected by the law – certainly the idea of helping working class families get through hard times is laudable and easy to get behind. Unfortunately, as with other government-enforced policies intended to help the poor, Austin’s paid sick policy is very unlikely to have the intended effect expected by its supporters. Not only is it bad economic policy, mandated sick leave pay will hurt small businesses and ultimately the workers the policy is intended to help.
Supporters of the policy are able to frame the discussion very simply: either you support the policy and want to help the sick and working families – or you don’t support it and thus you only care about supporting big business owners and don’t care about the working class. Of the roughly 200 people that testified in from of the Austin City Council, some of the strongest testaments supporting the law were those told by the poor and working class. Undoubtedly, putting a face to those that the law would supposedly support is a good strategy to gain support.
Even the ordinance itself states that “Denying earned sick time to employees is: unjust, is detrimental to the health, safety, and welfare of the residents of the City; and contributes to employee turnover and unemployment, and harms the local economy.” The same framing strategy was used by City Council members: “It’s a public health issue and it’s a basic human right issue,” argued Ann Kitchen. “Everyday Texas understand that giving somebody time of to take care of a sick child is just the right thing to do,” Council Member Greg Casar said, “If anyone in the Legislature thinks otherwise, I would be ready to have that kind of conversation.”
Despite the purported good intentions of the law and its supporters, research and basic economics proves that this policy not only won’t work – it will harm those it is supposed to help. Similar sick leave mandates have already been employed in cities such as San Francisco, Washington D.C., and Seattle where results have shown that employers were often forced to raise prices, cut employee pay and benefits, and even lay off workers. Businesses in Austin foresee the same outcomes as reported by the Austin Independent Business Alliance:
“Many businesses said that they would need to cut other benefits such as planned raises, overtime opportunities or schedule flexibility to pay for paid sick days. Others would lay off employees to comply with this policy. Some even stated that they would move out of Austin city limits, citing this as the final straw from a city they don’t believe supports them.”
This wouldn’t be done out of mean-heartedness – it’s just the simple fact that this policy, as with other government-mandated regulations on businesses like the minimum wage, put an additional cost on businesses and they have to find a way to pay for it in order to keep their business running. Whether it’s reducing salaries, benefits, or even the number of employees, small businesses are left with no other choice when this additional cost is added and are less willing to add additional employees in the future. We’ve already seen how employers react to such regulations such as ObamaCare, as businesses have converted full-time employees to part-time and consolidated their workforce in order to avoid the law’s mandates.
Moreover, paid sick leave provides employees with fewer options. Workers who would prefer more take-home and fewer benefits no longer have this option. In fact, according to the Bureau of Labor Statistics, today, more than thirty percent of a worker’s total compensation already goes to provide benefits. Every family has their own unique situation – so while some may be fine with this, many families may prefer to trade those benefits for a 30 percent increase in take-home pay. So rather than providing a new benefit, mandated paid sick leave actually outlaws a whole universe of employment options.
Some legislators at the state level have spoke up in opposition to the local ordinance, and one state senator, Donna Campbell, R-New Braunfels, has even proposed passing a state law to override Austin’s paid sick leave policy, saying she is “fully prepared to pass statewide legislation to stop Austin’s intrusion into the private sector and protect small businesses in Texas.” While the local ordinance is definitely bad economic policy and will end up harming local businesses and employees, there is a healthy debate to be had as to whether or not the state should have the power to overturn local laws such as Austin’s mandated paid sick leave. Should state legislators overturn misguided local policies to protect workers and small business? Or, should local cities be free to make local policy to address local issues? Here, there is a tension between championing economic freedom or upholding the principle of localism. While we wait to see if the state legislature acts to overturn the ordinance, Austin will have to learn the hard way that regardless how well intended, the law will put an unnecessary burden on local businesses and subsequently harm those workers the law is ostensibly trying to help.
Dillon Jones, Senior Policy Analyst